Correlation Between Insteel Industries and Hafnia

Can any of the company-specific risk be diversified away by investing in both Insteel Industries and Hafnia at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Insteel Industries and Hafnia into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Insteel Industries and Hafnia Limited, you can compare the effects of market volatilities on Insteel Industries and Hafnia and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Insteel Industries with a short position of Hafnia. Check out your portfolio center. Please also check ongoing floating volatility patterns of Insteel Industries and Hafnia.

Diversification Opportunities for Insteel Industries and Hafnia

0.25

Correlation Coefficient

Insteel Industries  Hafnia

Modest diversification

The 3 months correlation between Insteel and Hafnia is 0.25. Overlapping area represents the amount of risk that can be diversified away by holding Insteel Industries and Hafnia Limited in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on Hafnia Limited and Insteel Industries is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Insteel Industries are associated (or correlated) with Hafnia. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of Hafnia Limited has no effect on the direction of Insteel Industries i.e., Insteel Industries and Hafnia go up and down completely randomly.

Pair Corralation between Insteel Industries and Hafnia

Given the investment horizon of 90 days Insteel Industries is expected to generate 4.98 times less return on investment than Hafnia. But when comparing it to its historical volatility, Insteel Industries is 1.27 times less risky than Hafnia. It trades about 0.01 of its potential returns per unit of risk. Hafnia Limited is currently generating about 0.05 of returns per unit of risk over similar time horizon. If you would invest  333.00  in Hafnia Limited on September 21, 2024 and sell it today you would earn a total of  182.00  from holding Hafnia Limited or generate 54.65% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Very Weak
Accuracy	81.82%
Values	Daily Returns

Insteel Industries  vs.  Hafnia Limited

Insteel Industries

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Insteel Industries has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of latest unsteady performance, the Stock's forward indicators remain healthy and the recent disarray on Wall Street may also be a sign of long period gains for the firm investors.

Hafnia Limited

Risk-Adjusted Performance

0 of 100

Very Weak

Over the last 90 days Hafnia Limited has generated negative risk-adjusted returns adding no value to investors with long positions. In spite of unfluctuating performance in the last few months, the Stock's technical and fundamental indicators remain very healthy which may send shares a bit higher in January 2025. The recent disarray may also be a sign of long period up-swing for the firm investors.

Pair Trading with Insteel Industries and Hafnia

The main advantage of trading using opposite Insteel Industries and Hafnia positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Insteel Industries position performs unexpectedly, Hafnia can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in Hafnia will offset losses from the drop in Hafnia's long position.

The idea behind Insteel Industries and Hafnia Limited pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

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Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Premium Stories module to follow Macroaxis premium stories from verified contributors across different equity types, categories and coverage scope.